In 2017, HD had reported a deferred tax asset of $90 million with no valuation allowance. At December 31, 2018, the account balances of HD Services showed a deferred tax asset of $120 million before assessing the need for a valuation allowance and income taxes payable of $80 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2018. What amount should HD report as income tax expense in its 2018 income statement?

Question

Quizplus · Accepted Answer

The tax expense of $80 million is adjusted for two items. (1) It is reduced by the $30 million increase in the deferred tax asset, and (2) it is increased by the $36 million increase in the valuation allowance (30% × $120 million).

In 2017, HD Had Reported a Deferred Tax Asset of $90